Baird Downgrades ABM Industries On Labor Market Challenges

The Analyst

Baird's Andrew Wittmann downgraded ABM Industries, Inc. (NYSE: ABM) from Outperform to Neutral and he reduced its price target from $36 to $35.

The Thesis

The analyst expects the labor market inflation to continue to put the pressure over ABM Industries' business model. He explained that the labor market challenges are disruptive to his prior, optimistic view of the company and he decided to cut his FY2019 forecast.

Consensus for 2019 is too high, Wittmann said, and added that there are potential challenges in the near term as organic growth rate could moderate. He also sees a problem with a recent increase in the hiring of the sales personnel, which could have a negative impact on margins from productivity gaps. There's also an issue of a significant increase in technological solutions and labor cost mitigation efforts are also expected to be significant.

The analyst values the company at 10.9 times FTM EBITDA, which seems fair to him due to a modest growth outlook.

Price Action

ABM Industries dropped about 7.5 percent on Thursday to $30.46.

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